The month has come to an end. The month is finished.

Check the restaurant’s account.

The number you received wasn’t what you would have expected.

This disconnect can be frustrating for restaurant owners because they think that profit and cash on hand should tell the same tale. But they don’t. It’s not true. P&L is a gauge of financial performance. On the other hand, the bank account is a representation of when money moves into and out.

Understanding the different aspects could help restaurant owners shift their views on the restaurant’s finances.

Look at what happens during a normal week. Customers pay for meals. Employees must be paid. You will receive invoices for the delivery of food and drinks. Rent is close to being paid. Credit card deposits are subject to their own timetable. Taxes on sales are collected but it comes with a responsibility.

Already the shopping spree for next week have begun.

Looking only at revenue or the final profit figure misses much of that activity.

Prime Cost Could Hold the key to the answer

When the profitability of restaurants starts to change in the wrong direction, the food, beverages as well as labor costs require consideration.

Together, the cost of products sold and labor are the main costs. The Bookkeeping Chefs’ provided guidance places the prime cost between 60% and 65 percent of the revenue for many establishments. They also recommend daily monitoring, not waiting until the end of the month.

Effective prime cost management is less about obsessing over a single percentage and more about noticing movement early.

If the restaurant typically performs near its target however this week it’s more of a percentage. Perhaps the overtime rate went up. Maybe the costs for beverages were stable, but food costs increased. A higher proportion of food may cause the manager to look at purchase, waste, menu mix, portions, or vendor invoices.

The percentage is a source of concern. It is in the underlying food service activity.

The reason this conversation can be relived is because everybody can remember what happened.

After a few weeks after that, the details become harder to decipher.

The Vendor’s Bills Are Received

Restaurants may buy ingredients the week before and make payments the following week. That timing helps explain why that understanding profit alone isn’t the answer to every cash question.

Vendor invoices need to be accepted and tracked. In a busy operation with many suppliers, completing that manually can become the company’s own administrative task.

Automating accounts payable helps to streamline this process by reducing the need to handle bills in a repetitive manner and payment information. The bookkeeping system that is connected to the internet can provide the user with a more clear picture of debts that haven’t yet reached the bank account.

This is advantageous, since the bank’s balance could appear more healthy than the restaurant’s actual financial situation.

It could be that you’ve got $80,000 in your account at the moment. The $80,000 figure means very little if rent, vendors or payroll are to take an enormous amount over the coming days.

This naturally leads to cash flow forecasting.

What will happen with our cash once we’ve received the funds we’ve expected and have fulfilled all of our obligations?

It is vital to recognize the difference before deciding if this week is an ideal time to replace equipment or buy additional products or save liquidity.

The Cash Wasn’t Really Yours

The example of sales tax is an excellent one.

The cash a restaurant gets from its customers will eventually have to be dealt with in accordance to its tax obligations. If these funds are grouped with ordinary operating cash, the balance in the bank can give a false idea of what is available for spending.

A consistent record-keeping system helps restaurants to comply with the sales tax laws and also providing a realistic image of their financial condition.

This is the reason restaurant accounting works better when financial obligations aren’t viewed as separate entities.

Prime cost affects margin. COGS and future payments are affected by vendor purchases. Payroll affects both labor percentage and cash. Cash flow is impacted by sales tax. P&Ls keep track of financial performance and forecasting allows management to take a look ahead.

The pieces are connected.

Bookkeeping Chef integrates restaurant-specific reporting and system integrations. Outsourced bookkeeping can help operators who do not want to be tasked with reconciling their financial data.

That last part matters.

The aim isn’t to get owners of restaurants to stop looking at the books because someone else handles them. Owners must be provided with information that can help them know what’s going on.

Don’t be fooled into thinking that the P&L is wrong if the balance of the bank seems to be tight, however the P&L confirms that the restaurant made money.

What transpired between the two?

This will reveal more about your company than any number.